CEO of Arco Vara: sudden reversal in state budget policy significantly diminishes the economic capacity of both individuals and businesses

In analyzing the Estonian real estate market, the CEO of Arco Vara Miko Niinemäe anticipates an intriguing year ahead for the currently moderately stagnant market. He asserts that a sudden reversal in the state budget policy is poised to diminish the economic capacity of individuals and businesses substantially.

Miko Niinemäe, the CEO of the residential real estate developer Arco Vara, assesses the current real estate market as experiencing a moderate slowdown. “It cannot be stated that the real estate market is in a critical state, but a moderate slowdown is indeed observed. While the market for lower-priced second-hand properties and properties in the so-called ‘hills of Tallinn’ is more active, the number of transactions for higher-priced new developments, especially larger apartments, is currently noticeably restrained,” he remarks.

The sale of apartments in the Kodulahe quarter Rannakalda development in the Stroomi beach area, completed by Arco Vara this year, has progressed steadily well, considering both the Estonian and broader Scandinavian markets. “Over half of the completed apartments have been sold, and the handover to new homeowners will occur within this calendar year. It is noticeable that homebuyers dominate among clients with fewer investors in the case of new developments. The few remaining unsold apartments are generally the larger ones,” notes Niinemäe.

The increase in value-added tax (VAT) is slowing down the economic recovery.

“It is clear that the customer is not ready today for the addition of 2% to the price of the real estate they are purchasing. As the daily expenses of homebuyers increase, their loan capacity decreases. This means that the burden of this rise largely falls on developers and builders,” predicts Niinemäe, emphasizing that developers in the sluggish real estate market already offer discounts to meet buyers’ expectations.

“Regulations further slow down the development of the real estate market, which in turn hinders the recovery of our country’s economy. In this sense, an interesting year is ahead, where a sudden turnaround in the state budget policy will noticeably affect the economic capacity of both individuals and businesses. The consumption and inflow of money into the economy, including import and export, are at risk of decreasing significantly,” says Niinemäe.

According to Niinemäe, seismic shocks of the magnitude of an earthquake are probably not expected in the Estonian real estate market in the coming year, but some consolidation is possible. “There probably won’t be very significant shocks, but some so-called land redistribution among local companies may occur,” says Niinemäe.

Functional use of space takes precedence over smart homes.

According to the results of Kantar Emor’s annual real estate market survey, it is evident that homebuyers prioritize a well-thought-out floor plan over square footage. “Customers prefer smaller apartments with a functional spatial layout, where every square meter is cleverly utilized. This holds for our Rannakalda development as well,” states Niinemäe.

Niinemäe also notes the deepening scrutiny of buyers regarding the quality of the acquired property. “Customers have become more informed, conducting much more detailed background research on the property they are purchasing and expressing interest in understanding precisely what the price includes,” he adds.

One of the most surprising findings from this year’s Emor real estate market survey for developers is that customers who have recently changed homes are most bothered by the smart home solutions in newer properties, often failing to function as expected.

“In light of the recent survey, it must be acknowledged that in Rannakalda, we have chosen the right path by focusing on usability and creating a family-friendly integrated living environment rather than chasing the latest trends in smart home solutions. Indeed, systems promising significant user convenience are often faulty, and as seen, they can cause frustration among buyers when glitches occur,” explains Niinemäe.

Assessing the current real estate landscape, Niinemäe believes that significant opportunities are currently in a wait-and-see mode, also reflected in the activities of major international and domestic investment funds. “It seems that larger investment opportunities have not yet materialized. However, the upcoming year 2024 could bring promising opportunities for those with a strong financial standing and readiness to react swiftly, particularly from an investor’s perspective,” concludes Niinemäe.